Daijiworld Media Network - New Delhi

New Delhi, Jul 12: India’s consumption outlook is poised for moderate growth, supported by recent income tax reliefs, easing inflation, declining interest rates, and a promising agricultural season, according to a new report by CareEdge Ratings.

Private final consumption expenditure, which contributes nearly 60% to India’s GDP, remains a key pillar of the country's economic trajectory. The report notes that these supportive factors are expected to lift rural incomes and maintain steady consumption momentum, even as urban demand shows early signs of strain.

“We project private consumption growth at 6.2% in FY26, compared to an average of 6.7% over the past three years,” the report states. “Sustaining this growth will depend heavily on trends in household income and spending capacity.”

Rural Strength, Urban Challenges

While rural demand is likely to stay resilient due to favourable monsoon forecasts and improved agricultural productivity, urban consumption faces emerging challenges. The report highlights subdued income growth and rising household debt as potential drags on urban spending.
Still, recent policy interventions—such as rate cuts by the Reserve Bank of India (RBI) and reductions in tax burdens—are expected to cushion some of the near-term impact on urban consumption.

Debt on the Rise, But Not Alarming Yet

India's household debt levels have been rising, standing at 41% of GDP and 55% of net disposable income in FY24. Though this is considerably lower than peer economies such as Thailand (87%), Malaysia (67%), and China (62%), analysts caution against complacency.

Of particular concern is the rise in unsecured lending post-pandemic, coupled with signs of increasing delinquencies. “It is vital to monitor the unsecured segment closely, especially in light of softening income growth,” the report warns.

Looking Ahead

With inflation softening and rural prospects looking bright, India’s overall consumption story appears stable in the near term. However, structural vulnerabilities in household finance and urban spending trends will need careful observation to sustain long-term growth.

A meaningful revival in private capital investment, the report adds, will hinge on the strength and durability of this consumption recovery.